Tuesday, Jun 01, 2004

MARC has assigned the ratings of MARC-2ID/A+ID to DeGem Bhd’s (DeGem) proposed RM50.0 million private debt securities (PDS). The ratings reflect the Group’s proven track record as one of the leading jewellers in Malaysia. The ratings also took into consideration DeGem’s better than average financial profile characterised by its low gearing and favourable liquidity profile. Moderating factors include the inherent risks of the retail industry and price competition among the existing players.

DeGem’s revenue increased 11.5% to RM114.01 million in FY2003, arising from the increase in domestic consumer spending, as well as the opening of new outlets during that fiscal year. Operating margin grew to 18.1%; from 17.6% recorded previously. In line with the increase in revenue, profit before tax jumped 14.6% to RM19.37 million (FY2002: RM16.91 million). MARC views the Group’s liquidity position favourably. DeGem’s current ratio averaged above 2x since FY2000 while debt-servicing capacity is more than adequate averaging above 3x since FY2001. Meanwhile, the issuance of the RM50 million private debt securities would result in a pro-forma D/E ratio of 0.59x based on FY2003 shareholders funds of RM93.5 million. A maximum gearing ratio of 1x has been imposed under the MUNIF/IMTN issue structure.

Going forward, the Group is expected to remain focused on expanding its core business. Ultimately, the Group aims to establish its presence at major cities in Malaysia by 2007 and promoting/advocating ‘DeGem’ as a jewellery household name domestically.

The PDS are secured by assignment of monies standing to the credit of the Finance Service Account (FSA) including the Permitted Investments from the FSA; as well as an assignment of all the insurance policies in respect if DeGem’s stock in trade. The payment structure of PDS, with maturities on an annual basis (beginning on the fourth year of the issue), reduces the refinancing risk through the progressive redemption of the total debt over the term of the instrument.